This is similar to how you narrow down your choices when you are buying a house or a car. You start with a large list and use a set of criteria to narrow your focus. For me, the criteria is expected return over the next 3-5 years from a stock.
Expected return is the output of the valuation model. Once I value companies in my white lists, I sort them based on expected return. Generally top 50 companies based on highest expected return are included in Select 50 portfolio. This list is then narrowed down to 20, 10 and finally 5, primarily based on expected return.
As stock prices go up(down), expected returns go down(up) so I review these portfolios periodically to make sure portfolios consist of stocks with highest expected returns out of my while lists. If price rise faster than intrinsic value, then stock will drop out of the portfolios.
I have been attending VP meet for 4 years and still look forward to it so eagerly every year due to the immense learning I carry away each year to reflect back on how I can improve as an investor. This year was no different. There was truckload of learning for me not only for investing but also how to lead a happy and healthy life. VP meet gets its true charm because of enthusiastic participation from everyone and the hard work put in by each participant in putting up presentation/thoughts so that it adds value for the group. We were fortunate to have Prof.Bakshi and Sumeet Nagar sharing their experience and knowledge through these days and nudging us to think some very important aspects of investing, that we might have been overlooked in the flow of a bull market!! Late night informal talks after formal presentation was over at 11:30, was stimulating and to be followed by dense conversation in room with my room mate @rupeshtatiya on range of topics till 3 in morning…couldn’t have asked for more for sure!
Here are some of my key learning
The ideas propounded by Anthony deden (link provided by Rupesh in earlier post in this thread) about permanance and independence are indeed central to the long term investing especially if one is a buy and hold investor. Even though it may not be possible to immulate Anthony with the same strategy given different investment goals and base capital, the central ideas are extremely critical for long term investing. This idea was further discussed in context of why it is important to look for businesses that are “robust” if not anti fragile. Typically, the business that try to reduce dependence on outside forces, make themselves more robust and hence can survive longer under adverse condition
Another interesting takeaway from above discussion for me was that as an entrepreneur, the first prioroty is always survival, growth comes later. This again made me reflect as to how we as investor should mould/rein our expectatation on growth first appraoch. It is important to appreciate businesses that put in place a business model that helps them survie for long, even if it means sacrificing growth in the near term. Eventually, businesses that survives longer and grow at decent pace may generate much better returns as compared to businesses where the sole focus is on hyper growth while the sustainability of business is a question mark
There was very interesting discussion on how it is important to “change minds” for an investor when one encounters information/data point that is contrary to one’s hypothesis. This has been one of the weak areas for me as I tend to give long rope to management/business in general. We also discussed how bayesian math will dictate that similar information (Contrary) countered 2nd or 3rd time disproportionately increases the odds of us being wrong. We discussed, examples from many in the group as to how we have fallen for it and it was great vicarious learning
Another interesting point being discusses and that has stayed with me (at least till now!) is the important of focus and not being distracted by working on too many investment ideas at the same time. It is important to focus on one idea and do a deep dive until we really understand the business dynamics very well. Working on multiple ideas simultenously may dilute the focus and may not give an opportunity to reflect upon the key questions. In case, if we come across the more interesting investment ideas while we are working on one, we can always create a repository of potential ideas and take up one by one. This also prodded me to think as to how I shall be stricter with the filters that I apply at screening stage to ensure that the repository of ideas is managable!!
Another takeaway for me was that many of the great practitioners of investing, they focus on business first and valuation comes into play only after business quality is appealing to them. They do not make investing decisions based ONLY on valuations or rather valuation is never starting point for them. Also once they find good quality business, they patiently wait for the business to trade at valuations where they are comfortable buying. This process of starting from business quality and then going to valuation ensures that one ends up with a portfolio of high quality businesses that compound money over time and jump in/jump off is minimized
All individual presenttions were very good. Everytime I see individual presentation from each one of us, it further reaffirrms my view that there are myriad ways of making money in market and it is important to remain humble and accept that styles/strategies other than our own may work very well too.
On Industry presentation: I felt all the groups put in lot of efforts to ensure that the excercise was an opportunity to learn for themselves at the same time value add for the group. Even though I had looked at Insurance space closely in the past, the failure rate of life insurance company around the world was an eye opener for me. This clearly meant, that I need to recaliberate my investment hypothesis around the same and be cognizant of the risks as the base rate may eventually catch up with the insurance companies in India too. I am determined to understand more on it to see where indian insurance companies can trip off
Apart from learning the bonding that is done over the meet with fellow VPers is priceless. Even less than a month after the meet, I have started to look forward to the next one!!
Really good work by all the participants of recent VP CHINTAN BAITHAK GOA 2018.
Your experience sharing along with learning might be motivation to other readers to work hard and be a part of such elite learning experience.
Request for respective presenter to share their presentations particularly thematic one and also enlighten other readers if any interesting outcome / learning from particular themes.
E.g. in Chemicals space there are more than 200+ cos and most companies have some niche and for most categories only 3-4 companies working on it. So if I consider particular sub segment of chemical only handful of companies are working on it, so if during presentation if you people share / identified / discussed any particular companies / theme it will be more useful
Similarly for Fintech, undoubtedly it can be a humongous opportunity but which companies can benefit from listed space. If we look at any Tech company most companies will try to showcase their business model aligned with the hot theme and there is enough history of wealth creators vs. destroyers and story tellers. We have also experienced similar theme around SMAC, which is again huge theme but if we look at actual wealth creator it was only one 8K Miles, which is also facing business / corp. governance related issues. So there are themes which has excellent potential but when it comes to investible universe we don’t have enough choice.
So in nutshell themes / opportunity might be so appealing, but when it comes to investment we might have real scarcity of good stock ideas.
May be I am asking for some particular information, so share / discuss only if that is comfortable with you all.
Keep up the good work of sharing your experience in learning.
Great repository of wisdom. Thank you for liberal sharing.
Hope to see the above presentations. If they are shared in another thread, would some one please specify here. ?
Sumeet had very good pointers for us to follow. Most of the ideas he covered are included in his recent Bloomberg Quint Video. So I suggest to go through this video.
Key notes from the session
Do not mistake a puddle for a moat
Three types of growth model
Linear model - a) Industry growth b) Market share growth
Expansionary model - a) Value migration b) New categories c) Geographic migration
Acquisition
Incremental market share growth should be positive
Multiple expansion
Change in perception - a) invest when quality is not understood b) cyclicals
Change in reality - a) Capital efficiency b) Runway for growth c) Resilience of business
It is not necessary to be early in the game
Goldilocks zone when operating performance in increasing and multiple is decreasing
This is quite interesting. Incidentally, I had recently read the book - anti-fragile by Nassem Nicholas Taleb in which he goes into the details of fragility and optionality.
VP Chintan Baithak 2019 is over. For attending VP Annual Chintan Baithak, one has to contribute on the forum, maintain discipline, earn respect of fellow forum members, quality of posts, helping in maintenance of forum etc and be among the top 25 contributors. Place of any of the earlier participants is not permanent. If anyone of previous participant’s contribution during the year is low, the others with higher contribution gets his place. Selection is purely based on the merits.
Just a thought, maybe you guys can consider taking a video for people who don’t get to attend
I understand it’s not proprietary as attendees are freely sharing what they learnt
Best,
Late night informal talks after formal presentation was over at 11:30, was stimulating and to be followed by dense conversation in room with my room mate